A High Court judge has ruled cryptocurrency must be recognised as property in a legal win for account holders in failed exchange Cryptopia.
Christchurch-based Cryptopia was formed in 2014 but went into liquidation in May 2019 after suffering a hack and the loss of $30 million in cryptocurrency. A police investigation is ongoing.
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Cryptopia's liquidators - Grant Thornton's David Ruscoe and Malcolm Moore - turned to the High Court in February to work out how to distribute some $170 million in bitcoin.
The key issue for the court was whether the digital assets were held on trust for some 800,000 account holders with a positive coin balance, or should go into the general creditors' pool.
The creditors' group is owed $12.7 million, including $5 million to the Inland Revenue.
The court-appointed Peter Watts QC to represent the account holders while Jenny Cooper QC acted for the interests of the 37 creditors, with all lawyers fees being paid out of the liquidation.
Watts argued that any finding by the court that cryptocurrencies aren't property would have "profound and unsatisfactory implications" for the law in New Zealand, and that his opponent was wrong to argue that the issue should be left to Parliament.
In a 74-page decision, Justice David Gendall found cryptocurrency was property and, in this case, was being held on trust for account holders.
While he noted that some types of cryptocurrencies are used by criminals, he said they have also "become popular with honest people as a method of effecting payments and investing.
"Any failure by the general law to recognise cryptocurrencies as property, as I see it, would have little effect in reducing potential criminal activity. The banking system is subject to exploitation by the criminal fraternity, just as other traditional assets are," he said in the April 8 judgment.
The liquidator's most recent report dated December 11 said it was still trying to reconcile the accounts of 900,000 active customers. Although the process was well underway, liquidators said that the job was complex because customers did not have individual wallets and there was no detailed reconciliation between the Cryptopia's customer database and the crypto-assets held in the wallets.